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On the heels of Senator Grassley's less-than-favorable comments regarding tax-exemption for nonprofit hospitals (blogged by Darryll Jones earlier this week here), the Illinois 4th District Court of Appeals will hear oral argument in Provena-Covenant Medical Center v. Dept. of Revenue this Wednesday, June 18 at 9:00 a.m. in Springfield, Illinois (the oral argument calendar is available here).

For those who haven't kept up with this saga, Provena-Covenant is a nonprofit hospital located in Urbana, IL whose state property tax exemption was revoked by the Illinois Department of Revenue in September, 2006. The case actually began two years earlier, with a recommendation in 2004 by the Champaign County Board of Review (a citizens' board that reviews property tax disputes) to revoke Provena's exemption. Prior to the Board of Review's recommendation, Provena had received national attention (ignominy?) for its widespread use of the quaint Illinois procedural device called a "body attachment" that permits creditors to have debtors thrown in jail for missing a court hearing on a debt collection case. After a series of internal appeals to the Department of Revenue, the Director of the Illinois DOR, Brian Hamer, issued a final opinion revoking Provena's tax exemption, primarily on the grounds that Provena provided inadequate charity care - according to Hamer, Provena's charity care expenditures during the tax year in question (2002) amounted to less than 7/10 of 1 percent (0.7 percent) of its revenues. Hamer's opinion is available here.

Provena then appealed the DOR's decision to circuit court, and in an oral decision delivered from the bench, Circuit Judge Patrick J. Londrigan reinstated Provena's exemption on July 20, 2007. The DOR then appealed to the 4th District court of appeals, which is where the case currently stands.

The Provena case is fascinating on a number of fronts. One of the fascinating aspects is that the main issues in the case are essentially the same ones that the Utah Supreme Court considered over 20 years ago in the famous Utah County v. Intermountain Health Care decision: should tax-exemption for nonprofit hospitals be tied solely to charity care? If so, how much charity care is necessary? And how do we even define what charity care is (for example, should Medicare and Medicaid "shortfalls" count as charity care)? The Provena case highlights how little progress we have made in addressing these issues from a policy perspective over the past two decades. Provena also raises some questions about how relationships between a nonprofit and various for-profit sibling entities should affect exempt status. One of the things that troubled both the Champaign County Board of Review and Brian Hamer was how much of the operation of Provena was "outsourced" to sibling nonprofit and for-profit entities, and the fact that Provena made substantial distributions of net revenues to its parent corporation, Provena Health. I reviewed most of these issues in an article I wrote a couple of years ago about the Provena case that was published in the Loyola University Chicago Law Journal, 37 Loy. U. Chi. L.J. 493, available from Lexis here. An edited version of this article, updated to consider the DOR's final disposition of the case, was published by the Exempt Organizations Tax Review and is available on Lexis here.

One final fascinating part of Provena: before the DOR and in the circuit court, Provena argued that even if it did not meet the standards for exemtion as a nonprofit hospital, it should be exempt as a religious organization (Provena is part of the Catholic Provena Health system). This argument basically was ignored by Brian Hamer in his opinion for the DOR, but Judge Londrigan stated in his opinion that the evidence established that Provena "satisfied the relevant factors used to determine qualification for charitable- and religious-exempt use for the real estate at issue in this proceeding.’’ It will be interesting to see how the 4th District handles this if it gets to that issue (I think that Rob Katz may be working on a research project that involves this very question).

If all goes well, I intend to attend the oral argument on Wednesday and will try to post a summary to the blog Wednesday afternoon.